Asymmetric Risk Allocation in Foreign Direct Investment: Integrating Transnational Corporate Due Diligence

Abstract

This study examines the structural imbalance within the international investment regime, where Bilateral Investment Treaties facilitate asymmetric risk allocation by functioning as unpriced public insurance for multinational enterprises. The escalating volume of Investor-State Dispute Settlement claims and speculative valuation methods significantly restrict the host state's regulatory autonomy, inducing a detrimental regulatory chill. Utilizing doctrinal legal research with conceptual and statute approaches, this research analyzes the triangular interaction between extraterritorial home state regulations, host state pragmatism exemplified by Indonesia’s Omnibus Law and transnational corporate obligations. The findings reveal that current protections prioritize investor interests over sustainable public policy. Consequently, this study proposes integrating mandatory transnational due diligence as a jurisdictional filter for Fair and Equitable Treatment protection. Such recalibration, grounded in the principle of systemic integration, effectively limits expansive legitimate expectations and restores sovereign authority to regulate in the public interest, ensuring a more equitable distribution of investment risks within the global architecture.